(FORTUNE Magazine) – Two days after he announced his blockbuster addition to Citicorp's loan loss reserves, Chairman John Reed discussed the move at length with FORTUNE's Jaclyn Fierman. Excerpts:

On why he created the reserve: Clearly there are risks here that are real and that must be provided for. We did this to strengthen the bank and to give us greater ability to play a constructive role over the long term. It was Citicorp's management feeling in the pit of their stomachs that it was appropriate to make this kind of move.

On how he plans to use the $3-billion reserve: What I would like to do, over the next two to three years, is use some piece of my total reserve for the accounting associated with debt-for-equity swaps, loan sales, and so forth. I would guess that we might be able to change around various billions of dollars of our exposure, somewhere between one billion and five billion.

On the virtues of debt-for-equity swaps: Let's say that we took a billion dollars of our exposure to Brazil and converted it into equity investments in Brazil. We obviously wouldn't do it if we didn't think the investment was better than the debt. We would view equity as having upside gain that's not going to be subject to renegotiation every six months, with loans stretched out for 1,000 years, and at reduced rates or no interest at all. Such an investment would generally be more attractive than a loan.

On the effect of the move on other banks: We aren't crazy here. We are totally dependent on the global banking system functioning, and we would not do anything that we felt was destructive to that. The judgment was that it made sense to do it and that it would not have a negative impact on the banking system, and that it might indeed break the logjam in terms of flexibility. I believe that Treasury Secretary James Baker shares that feeling.

On why he didn't warn other banks sooner: This is the time that we have all these insider-trading scandals. Can you imagine what kind of position we would be in if the chairman of Citicorp sat around with the chairmen of other banks telling them something that is certainly material in terms of the marketplace? I mean, good God, we'd all go to jail.

On the question of lending new money: We will definitely lend new money. We have said consistently and constantly we will lend money anytime it makes sense. And making sense means there has to be some reasonable prospect that the money is going to get paid back.

On writing down the loans: No one writes off money just because they have a reserve. The board would fire me. The fact that I'm properly reserved doesn't say anything about taking write-offs. And I don't look to the regulators to tell me when to write off and when not to. We're paid to make business judgments on behalf of our stockholders.